One of the largest pension risk transfer deals on record could be subject to a class action lawsuit after a judge ruled that retirees could launch a legal action. The pension risk transfer deal, involving Verizon Communications transferring $7.5 billion of the Verizon Management Pension Plan obligations to insurer Prudential, had already been subject to unsuccessful legal proceedings at the end of last year which sought to stop the deal going ahead.
A U.S. District Court ruled last week that the 41,000 retirees whose pension plan obligations were transferred to Prudential could now sue Verizon as a group if they so choose. The judge also decided that 50,000 retirees who were not part of the $7.5 billion risk transfer could also file a joint class action suit if they judged it to be warranted.
The complaint is essentially the same as the one put forward late last year in the ongoing lawsuit which had initially sought to stop the transaction from going ahead. Now the retirees involved, and those who believe they could also be affected, have been given permission to pursue a class action against Verizon. The retirees claim that the deal could cause them to lose some of the protection afforded by U.S. government backed schemes such as the Employee Retirement Income Security Act (ERISA) and Pension Benefit Guaranty Corporation (PBGC).
The 50,000 retirees who are not part of the risk transfer will be able to pursue a class action on grounds that the use of pension plan assets to complete the deal, pay expenses to fund the deal may have been unlawful under the pension plans terms or ERISA.
A class action will likely ensue but there are no guarantees that the plaintiffs will be successful. The outcome is important though as whichever way it eventually is ruled could set a precedent for how other pension risk transfer, and longevity risk transfer for pension plans, transactions are undertaken and at the very least could mean greater disclosure or consultation with retirees is required.
More details from aiCIO can be found here.